The Tragic Mistakes of the Economic Theory Still Being Taught in Universities
16 Pages Posted: 3 Apr 2019 Last revised: 19 Oct 2021
Date Written: March 30, 2019
The conventional microeconomic theory, founded and developed mainly by neoclassical economists, contains some fundamental (mathematical) mistakes that lead to erroneous conclusions about how the economy operates and the results of this operation. Unfortunately, those mistakes have remained after the neoclassical synthesis that came through the merger of Neoclassical and Keynesian economics (mainstream economics) and they are still taught in universities to this day. The correction of those mistakes brings about dramatic changes in the economic theory concerning economic equilibrium, price theory, perfect competition, oligopoly, income distribution, social welfare, and other major fields of economics (e.g. labor, wages, employment) with serious social and political implications. This study analyzes those mistakes and shows that the equilibrium point in perfect competition is not at the minimum cost, as argued by the neoclassical economists, which further entails dramatic changes in the whole economic theory. Additionally, we attempt to detect the historical causes of those erroneous assumptions, and finally we outline the dramatic changes brought about by the correction of them in the economic theory, as well as their social and political implications.
Keywords: mistakes of the neoclassical theory, number of firms, price taking, individual demand curves for the firms, profit maximization, supply curve, price determination, equilibrium at firm and at market level, monopolistic nature of perfect competition, social welfare
JEL Classification: B13, B21, D21, D33, D41, D42, D43, D46, D60
Suggested Citation: Suggested Citation